The Hidden Value Of Contracts

By DAVID HOLME – Chief Executive Officer / Founder

The business of contracts. Part 1 of a series of blogs focused on contracts and their part in the modern legal team.

As the CEO and founder of Exigent I find myself at the centre of a business that is a mix of attorneys and technologists. Not quite oil and water but not too far off. As a finance person by background I find the opportunities I see in the contracts life cycle quite differently to some of my colleagues. For me contracts mean money. Perhaps Twain’s Mulberry Sellers had it right when he said “There’s gold in them thar hills”.

At Exigent, put simply I have always been interested in the emphasis placed on the investment required in building great contracts rather than extracting the value from that investment; as an accountant I believe there is too much emphasis on the “I” not the “R” in evaluating an ROI. This is especially pertinent when you consider that an in-house team can spend 50% plus of their time on the contracts process. That is a huge investment that is easily measured. How often do we as CEO’s measure the return on that?

We spent 18 months putting business and analysis at the centre of our contract process and Chameleon technology. There is much evidence to indicate that revenue leakage can be as high as 4% through not enforcing obligations (rebates, etc.) and maverick spend is significant in certain industries. Yet the answer lies in the contract base (“thar hills”) if you know how to extract it.

The challenge for many of our clients is resourcing and a lack of technology. A second challenge lies in the legacy contract base. Many of my friends and colleagues in the industry feel they are fire fighting and are under pressure to demonstrate value. It seems like a contradictory challenge. Yet internal legal teams are sitting on a mountain of valuable commercial information…in paper or PDF form, often unorganised and usually hiding the real value in a mountain of words. There may be 000’s of pages obscuring value extraction.
Here are a couple of thoughts to ponder upon

Don’t assume you can find the answer within. You probably don’t have enough resources and you may not have the right technology.
If you do have technology, how many people use it and know how to get the best out of it. My experience is not many.
Is there a contract optimisation strategy? Rare in most cases sometimes because many contracts lack a life cycle owner (Is it procurement? Is it legal? Is it finance?).

Sound familiar? So here are some tips to assist in finding an answer

Technology is half the answer but an essential element.
Contract management technology is only as good as the completeness of the information and the competence with which the system is set up.
Most clients want the output not the hassle input. That can be fixed by either outsourcing the whole or part of the process.
The contracts signed today will change as the operating and legal environment changes. In establishing a system the data extraction process needs to think 24-36 months out.
Involve all stakeholders in asking the simple question: What do you want from your contracts? What are the crucial elements commercially as well as from a legal perspective.

So to finding the “gold”. Understanding where the value lies as well as the risk, is key to finding gold. Being able to compare contracts information, to spot patterns and anomalies has immense value and automating enforcement obligations is an easy win. Most of all rely on experts who think “value” contracts as an opportunity not a headache. I encourage my colleagues to think like this; as Mulberry Sellers concluded: “there’s millions in it”.